PEORIA, Ill.--(BUSINESS WIRE)--RLI Corp. (NYSE: RLI) -- RLI Corp. reported second quarter 2016 operating earnings of $27.3 million ($0.61 per share), compared to $34.1 million ($0.77 per share) for the second quarter of 2015. For the six months ended June 30, 2016, operating earnings were $51.3 million ($1.16 per share) compared to $56.0 million ($1.27 per share) for the same period in 2015.
Second Quarter | ||||
Earnings Per Diluted Share | 2016 | 2015 | ||
Operating earnings (1) | $0.61 | $0.77 | ||
Net earnings | $0.65 | $0.84 | ||
(1) See discussion below of non-GAAP financial measures. |
Highlights for the quarter included:
- Underwriting income of $26.0 million, resulting in a combined ratio of 85.5.
- 1% growth in gross premiums written and 2% growth in net premiums written.
- $14.7 million net increase in underwriting income resulting from favorable development in prior years’ loss reserves.
- Book value per share of $20.87, an increase of 12% from year end 2015, inclusive of dividends.
“Our underwriters produced another quarter of excellent results,” said RLI Corp. Chairman & CEO Jonathan E. Michael. “An 85.5 combined ratio in a competitive market environment is a testament to our disciplined underwriting. Overall premium growth was modest, but remains particularly strong in our casualty segment, which was up 7% in the quarter, as well as our Surety segment, where premium was up 4%. Property premium declined as we continue to respond to a challenging market with underwriting selectivity.” He continued, “We are also pleased to report continued strong book value growth, driven by a combination of world-class underwriting and a long-term, consistent approach to investing.”
Underwriting Income
RLI achieved $26.0 million of underwriting income in the second quarter of 2016 on an 85.5 combined ratio, compared to $34.8 million of underwriting income on a 79.8 combined ratio in the same quarter for 2015. Results for 2016 include $14.7 million in favorable development in prior years’ loss reserves, compared to $30.1 million in favorable development in prior years’ loss reserves in 2015.
The following table highlights underwriting income and combined ratios by segment.
Underwriting Income (1) | Second Quarter | Combined Ratio | Second Quarter | ||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||
Casualty | $11.2 | $19.2 | Casualty | 90.1 | 81.1 | ||||||||
Property | 7.2 | 4.8 | Property | 80.9 | 88.3 | ||||||||
Surety | 7.6 | 10.8 | Surety | 74.5 | 62.9 | ||||||||
Total | $26.0 | $34.8 | Total | 85.5 | 79.8 | ||||||||
(1) See discussion below of non-GAAP financial measures. |
Other Income
RLI’s net investment income for the quarter fell 2.9% to $13.0 million, compared to the same period in 2015. For the six-month period ended June 30, 2016, investment income was $26.4 million versus $26.9 million for the same period in 2015. The investment portfolio’s total return was 2.8% for the quarter. The bond portfolio’s return was 2.4% in the quarter, while the equity portfolio’s return was 4.4%. Through six months, the investment portfolio’s total return was 6.1% with the bond portfolio returning 5.0% and equities returning 10.4%.
Comprehensive earnings, which include after-tax unrealized gains/losses from the investment portfolio, were $48.1 million for the quarter ($1.08 per share) compared to $12.3 million ($0.28 per share) for the same quarter in 2015.
Equity in earnings of unconsolidated investees was $5.2 million for the quarter compared to $6.2 million from the same period last year. These results are related to Maui Jim, Inc. ($5.0 million), a producer of premium sunglasses, and Prime Holdings Insurance Services, Inc. ($0.2 million), a specialty E&S insurance company. For the second quarter of 2015, equity in earnings of unconsolidated investees from Maui Jim and Prime was $5.9 million and $0.3 million, respectively. For the six-month period ended June 30, 2016, equity in earnings of unconsolidated investees was $8.9 million versus $10.4 million in 2015.
Net realized gains for the quarter included a $7.2 million realized loss from goodwill impairment. This non-cash goodwill impairment charge was related to RLI’s medical professional liability unit, which was acquired in 2012. As disclosed in previous SEC filings, the fair value of this business has declined in recent periods. Continued premium declines, coupled with adverse loss experience in the most recent quarter, resulted in the impairment charge.
Dividend Paid in the Second Quarter 2016
On June 20, 2016, the company paid an ordinary dividend of $0.20 per share, a $0.01 increase over the prior quarter. RLI’s cumulative dividends, including this recent payment, total more than $641 million paid over the last five years.
Non-GAAP Measures
Underwriting income, operating earnings, earnings per share (EPS) from operations and other per share items are non-GAAP financial measures, and we believe that investors’ understanding of RLI’s core operating performance is enhanced by our disclosure of these financial measures. Underwriting income or profit represents the pretax profitability of our insurance operations and is derived by subtracting losses and settlement expenses, policy acquisition costs and insurance operating expenses from net premium earned. Operating earnings and EPS from operations consist of our net earnings adjusted by net realized gains/(losses) and taxes related to net realized gains/(losses). Our definitions of these items may not be comparable to the definitions used by other companies. Net earnings and net earnings per share are the GAAP financial measures that are most directly comparable to operating earnings and EPS from operations. All earnings per share data are calculated using fully diluted shares. Combined ratio refers to a GAAP combined ratio.
Other News
At 10 a.m. central daylight time (CDT) tomorrow, July 20, 2016, RLI management will hold a conference call to discuss quarterly results with insurance industry analysts. Interested parties may listen to the discussion through the Internet at http://edge.media-server.com/m/p/cy3gdenk.
Except for historical information, this news release may include forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) including, without limitation, statements reflecting our current expectations about the future performance of our company or our business segments or about future market conditions. These statements are subject to certain risk factors that could cause actual results to differ materially. Various risk factors that could affect future results are listed in the company's filings with the Securities and Exchange Commission; including the Form 10-K Annual Report for the year ended December 31, 2015.
About RLI
RLI Corp. (NYSE: RLI) is a specialty insurer serving diverse, niche property, casualty and surety markets. The company provides deep underwriting expertise and superior service to commercial and personal lines customers nationwide. RLI’s products are offered through its insurance subsidiaries RLI Insurance Company, Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company. All of RLI’s subsidiaries are rated A+ “Superior” by A.M. Best Company. RLI has increased dividends for 41 consecutive years and delivered underwriting profits for 20 consecutive years. To learn more about RLI and its 50-year history of financial strength, visit www.rlicorp.com.
Supplemental disclosure regarding the earnings impact of specific items:
Operating Earnings Per Share | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||
2nd Qtr |
2nd Qtr |
6 Mos. |
6 Mos. |
||||||||||||||||
Operating Earnings Per Share (1) | $ | 0.61 | $ | 0.77 | $ | 1.16 | $ | 1.27 | |||||||||||
Specific items included in operating earnings per share: (2) (3) | |||||||||||||||||||
• |
Favorable development in casualty prior years' reserves | $ | 0.15 | $ | 0.29 | $ | 0.32 | $ | 0.40 | ||||||||||
• |
Favorable development in property prior years' reserves | $ | 0.04 | $ | 0.04 | $ | 0.03 | $ | 0.04 | ||||||||||
• |
Favorable development in surety prior years' reserves | $ | 0.03 | $ | 0.09 | $ | 0.04 | $ | 0.08 | ||||||||||
• |
Catastrophe impact | ||||||||||||||||||
· |
2016 storms | $ | (0.05 | ) | $ | - | $ | (0.05 | ) | $ | - | ||||||||
· | 2015 and prior events | $ | (0.01 | ) | # | $ | (0.07 | ) | $ | (0.01 | ) | $ | (0.07 | ) |
(1) | See discussion above of non-GAAP financial measures. | |
(2) | Includes bonus and profit sharing-related impacts which affected other insurance and general corporate expenses. | |
(3) | Reserve development reflects changes from previously estimated losses. |
RLI CORP. | |||||||||||||||||||||||
2016 FINANCIAL HIGHLIGHTS | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
(Dollars in thousands, except per share amounts) | |||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||||
SUMMARIZED INCOME STATEMENT DATA: |
|||||||||||||||||||||||
Net premiums earned | $ | 180,226 | $ | 172,339 | 4.6 | % | $ | 357,144 | $ | 341,342 | 4.6 | % | |||||||||||
Net investment income | 13,048 | 13,431 | -2.9 | % | 26,418 | 26,926 | -1.9 | % | |||||||||||||||
Net realized gains | 2,710 | 4,802 | -43.6 | % | 14,110 | 18,088 | -22.0 | % | |||||||||||||||
Consolidated revenue | $ | 195,984 | $ | 190,572 | 2.8 | % | 397,672 | 386,356 | 2.9 | % | |||||||||||||
Loss and settlement expenses | $ | 80,277 | $ | 64,549 | 24.4 | % | 161,448 | 145,410 | 11.0 | % | |||||||||||||
Policy acquisition costs | 60,521 | 59,487 | 1.7 | % | 122,764 | 118,460 | 3.6 | % | |||||||||||||||
Insurance operating expenses | 13,412 | 13,467 | -0.4 | % | 25,612 | 24,998 | 2.5 | % | |||||||||||||||
Interest expense on debt | 1,856 | 1,857 | -0.1 | % | 3,713 | 3,713 | 0.0 | % | |||||||||||||||
General corporate expenses | 2,768 | 2,748 | 0.7 | % | 5,143 | 4,992 | 3.0 | % | |||||||||||||||
Total expenses | $ | 158,834 | $ | 142,108 | 11.8 | % | 318,680 | 297,573 | 7.1 | % | |||||||||||||
Equity in earnings of | |||||||||||||||||||||||
unconsolidated investees | 5,191 | 6,186 | -16.1 | % | 8,942 | 10,380 | -13.9 | % | |||||||||||||||
Earnings before income taxes | $ | 42,341 | $ | 54,650 | -22.5 | % | 87,934 | 99,163 | -11.3 | % | |||||||||||||
Income tax expense | 13,264 | 17,465 | -24.1 | % | 27,464 | 31,380 | -12.5 | % | |||||||||||||||
Net earnings | $ | 29,077 | $ | 37,185 | -21.8 | % | $ | 60,470 | $ | 67,783 | -10.8 | % | |||||||||||
Other comprehensive earnings (loss), net of tax | 19,066 | (24,932 | ) | - | 40,829 | (32,527 | ) | - | |||||||||||||||
Comprehensive earnings | $ | 48,143 | $ | 12,253 | 292.9 | % | $ | 101,299 | $ | 35,256 | 187.3 | % | |||||||||||
Operating earnings: (1) | |||||||||||||||||||||||
Net earnings | $ | 29,077 | $ | 37,185 | -21.8 | % | $ | 60,470 | $ | 67,783 | -10.8 | % | |||||||||||
Less: Realized gains, net of tax | 1,761 | 3,122 | -43.6 | % | 9,171 | 11,757 | -22.0 | % | |||||||||||||||
Operating earnings | $ | 27,316 | $ | 34,063 | -19.8 | % | $ | 51,299 | $ | 56,026 | -8.4 | % | |||||||||||
Return on Equity: | |||||||||||||||||||||||
Net earnings (trailing four quarters) | 14.9 | % | 15.6 | % | |||||||||||||||||||
Comprehensive earnings (trailing four quarters) | 17.9 | % | 11.7 | % | |||||||||||||||||||
Per Share Data | |||||||||||||||||||||||
Diluted: |
|||||||||||||||||||||||
Weighted average shares outstanding (in 000's) | 44,423 | 44,019 | 44,381 | 44,008 | |||||||||||||||||||
EPS from operations (1) | $ | 0.61 | $ | 0.77 | -20.8 | % | $ | 1.16 | $ | 1.27 | -8.7 | % | |||||||||||
Realized gains, net of tax | 0.04 | 0.07 | -42.9 | % | 0.20 | 0.27 | -25.9 | % | |||||||||||||||
Net earnings per share | $ | 0.65 | $ | 0.84 | -22.6 | % | $ | 1.36 | $ | 1.54 | -11.7 | % | |||||||||||
Comprehensive earnings per share | $ | 1.08 | $ | 0.28 | 285.7 | % | $ | 2.28 | $ | 0.80 | 185.0 | % | |||||||||||
Cash dividends per share | $ | 0.20 | $ | 0.19 | 5.3 | % | $ | 0.39 | $ | 0.37 | 5.4 | % | |||||||||||
Net Cash Flow provided by Operations | $ | 48,305 | $ | 47,714 | 1.2 | % | $ | 69,571 | $ | 71,121 | -2.2 | % | |||||||||||
(1) |
See discussion above of non-GAAP financial measures. |
RLI CORP. | |||||||||||
2016 FINANCIAL HIGHLIGHTS | |||||||||||
(Unaudited) | |||||||||||
(Dollars in thousands, except per share amounts) | |||||||||||
June 30, | December 31, | ||||||||||
2016 | 2015 | % Change | |||||||||
SUMMARIZED BALANCE SHEET DATA: |
|||||||||||
Fixed income | $ | 1,631,953 | $ | 1,538,110 | 6.1 | % | |||||
(amortized cost - $1,564,819 at 6/30/16) | |||||||||||
(amortized cost - $1,518,156 at 12/31/15) | |||||||||||
Equity securities | 398,825 | 375,424 | 6.2 | % | |||||||
(cost - $210,622 at 6/30/16) | |||||||||||
(cost - $202,437 at 12/31/15) | |||||||||||
Other invested assets | 24,891 | 20,666 | 20.4 | % | |||||||
Cash and cash equivalents | 43,130 | 17,343 | 148.7 | % | |||||||
Total investments and cash | $ | 2,098,799 | 1,951,543 | 7.5 | % | ||||||
Premiums and reinsurance balances receivable | 148,894 | 143,662 | 3.6 | % | |||||||
Ceded unearned premiums | 52,536 | 52,833 | -0.6 | % | |||||||
Reinsurance balances recoverable on unpaid losses | 289,856 | 297,844 | -2.7 | % | |||||||
Deferred policy acquisition costs | 75,416 | 69,829 | 8.0 | % | |||||||
Property and equipment | 52,605 | 47,102 | 11.7 | % | |||||||
Investment in unconsolidated investees | 80,144 | 70,784 | 13.2 | % | |||||||
Goodwill and intangibles | 64,785 | 71,294 | -9.1 | % | |||||||
Other assets | 29,178 | 30,574 | -4.6 | % | |||||||
Total assets | $ | 2,892,213 | $ | 2,735,465 | 5.7 | % | |||||
Unpaid losses and settlement expenses | $ | 1,123,472 | 1,103,785 | 1.8 | % | ||||||
Unearned premiums | 445,620 | 422,094 | 5.6 | % | |||||||
Reinsurance balances payable | 17,679 | 37,556 | -52.9 | % | |||||||
Funds held | 72,558 | 54,254 | 33.7 | % | |||||||
Income taxes - deferred | 86,930 | 63,993 | 35.8 | % | |||||||
Bonds payable, long-term debt | 148,648 | 148,554 | 0.1 | % | |||||||
Accrued expenses | 39,352 | 55,742 | -29.4 | % | |||||||
Other liabilities | 44,420 | 26,018 | 70.7 | % | |||||||
Total liabilities | $ | 1,978,679 | 1,911,996 | 3.5 | % | ||||||
Shareholders' equity | 913,534 | 823,469 | 10.9 | % | |||||||
Total liabilities & shareholders' equity | $ | 2,892,213 | $ | 2,735,465 | 5.7 | % | |||||
OTHER DATA |
|||||||||||
Common shares outstanding (in 000's) | 43,775 | 43,544 | |||||||||
Book value per share | $ | 20.87 | $ | 18.91 | 10.4 | % | |||||
Closing stock price per share | $ | 68.78 | $ | 61.75 | 11.4 | % | |||||
Cash dividends per share - ordinary (annualized) | $ | 0.79 | $ | 0.75 | 5.3 | % | |||||
Cash dividends per share - special | $ | - | $ | 2.00 | -100.0 | % | |||||
Statutory Surplus | $ | 924,005 | $ | 865,268 | 6.8 | % |
RLI CORP. | |||||||||||||||||||||||||||
2016 FINANCIAL HIGHLIGHTS | |||||||||||||||||||||||||||
UNDERWRITING SEGMENT DATA | |||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||
(Dollars in thousands, except per share amounts) | |||||||||||||||||||||||||||
Three Months Ended June 30, |
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GAAP | GAAP | GAAP | GAAP | ||||||||||||||||||||||||
Casualty | Ratios | Property | Ratios | Surety | Ratios | Total | Ratios | ||||||||||||||||||||
2016 |
|||||||||||||||||||||||||||
Gross premiums written | $ | 161,128 | $ | 55,835 | $ | 33,700 | $ | 250,663 | |||||||||||||||||||
Net premiums written | 137,778 | 44,808 | 32,283 | 214,869 | |||||||||||||||||||||||
Net premiums earned | 112,360 | 37,794 | 30,072 | 180,226 | |||||||||||||||||||||||
Net loss & settlement expenses | 62,609 | 55.7 | % | 14,049 | 37.2 | % | 3,619 | 12.0 | % | 80,277 | 44.5 | % | |||||||||||||||
Net operating expenses | 38,626 | 34.4 | % | 16,500 | 43.7 | % | 18,807 | 62.5 | % | 73,933 | 41.0 | % | |||||||||||||||
Underwriting income | $ | 11,125 | 90.1 | % | $ | 7,245 | 80.9 | % | $ | 7,646 | 74.5 | % | $ | 26,016 | 85.5 | % | |||||||||||
2015 |
|||||||||||||||||||||||||||
Gross premiums written | $ | 150,885 | $ | 64,842 | $ | 32,372 | $ | 248,099 | |||||||||||||||||||
Net premiums written | 127,085 | 52,440 | 31,079 | 210,604 | |||||||||||||||||||||||
Net premiums earned | 101,914 | 41,281 | 29,144 | 172,339 | |||||||||||||||||||||||
Net loss & settlement expenses | 46,313 | 45.4 | % | 18,427 | 44.6 | % | (191 | ) | -0.7 | % | 64,549 | 37.5 | % | ||||||||||||||
Net operating expenses | 36,400 | 35.7 | % | 18,026 | 43.7 | % | 18,528 | 63.6 | % | 72,954 | 42.3 | % | |||||||||||||||
Underwriting income | $ | 19,201 | 81.1 | % | $ | 4,828 | 88.3 | % | $ | 10,807 | 62.9 | % | $ | 34,836 | 79.8 | % | |||||||||||
Six Months Ended June 30, |
|||||||||||||||||||||||||||
GAAP | GAAP | GAAP | GAAP | ||||||||||||||||||||||||
Casualty | Ratios | Property | Ratios | Surety | Ratios | Total | Ratios | ||||||||||||||||||||
2016 |
|||||||||||||||||||||||||||
Gross premiums written | $ | 285,179 | $ | 97,480 | $ | 64,253 | $ | 446,912 | |||||||||||||||||||
Net premiums written | 241,995 | 77,694 | 61,280 | 380,969 | |||||||||||||||||||||||
Net premiums earned | 220,953 | 76,479 | 59,712 | 357,144 | |||||||||||||||||||||||
Net loss & settlement expenses | 123,358 | 55.8 | % | 29,261 | 38.3 | % | 8,829 | 14.8 | % | 161,448 | 45.2 | % | |||||||||||||||
Net operating expenses | 77,364 | 35.0 | % | 33,775 | 44.2 | % | 37,237 | 62.4 | % | 148,376 | 41.5 | % | |||||||||||||||
Underwriting income | $ | 20,231 | 90.8 | % | $ | 13,443 | 82.5 | % | $ | 13,646 | 77.2 | % | $ | 47,320 | 86.7 | % | |||||||||||
2015 |
|||||||||||||||||||||||||||
Gross premiums written | $ | 264,792 | $ | 112,938 | $ | 60,936 | $ | 438,666 | |||||||||||||||||||
Net premiums written | 222,952 | 90,883 | 58,086 | 371,921 | |||||||||||||||||||||||
Net premiums earned | 200,682 | 83,399 | 57,261 | 341,342 | |||||||||||||||||||||||
Net loss & settlement expenses | 104,946 | 52.3 | % | 34,453 | 41.3 | % | 6,011 | 10.5 | % | 145,410 | 42.6 | % | |||||||||||||||
Net operating expenses | 71,263 | 35.5 | % | 35,942 | 43.1 | % | 36,253 | 63.3 | % | 143,458 | 42.0 | % | |||||||||||||||
Underwriting income | $ | 24,473 | 87.8 | % | $ | 13,004 | 84.4 | % | $ | 14,997 | 73.8 | % | $ | 52,474 | 84.6 | % |